WWE Stock To Wrestle Its Way Higher In 2021?

The shares of World Wrestling Entertainment (NYSE: WWE) have gained 52% since the lows observed last year, driven by stable revenues, positive operating cash, and the popularity of its flagship programs RAW, SmackDown, and NXT. WWE earns a bulk of its revenues from selling licensing rights to various broadcasters including television, digital & social media, and the silver screen. Despite the cancellation of live events due to the global pandemic, licensing revenues supported the company’s top line in 2020. Considering a huge subscriber base of 1.5 million and strong fundamentals, Trefis believes that the stock has room for more growth. Our interactive dashboard analysis highlights World Wrestling Entertainment’s stock performance during the current crisis with that during the 2008 recession.

Timeline of 2020 Crisis So Far:

• 12/12/2019: Coronavirus cases first reported in China
• 1/31/2020: WHO declares a global health emergency.
• 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
• 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
• From 3/24/2020: S&P 500 recovers 76% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here’s how WWE and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

World Wrestling Entertainment Stock vs S&P 500 Performance Over 2007-08 Financial Crisis

WWE stock declined from levels of around $15 in September 2007 to levels of around $10 in March 2009 (as the markets bottomed out), implying WWE stock lost 40% from its pre-crisis level. It completely recovered post the 2008 crisis to levels of $15 in early 2010 – rising by 58% between March 2009 and January 2010. In comparison, the S&P 500 Index first fell 51% in the wake of the recession before recovering 48% by January 2010.

The company delivered strong results during the pandemic

WWE’s revenues grew by 20% from $801 million in 2016 to $960 million in 2019 primarily supported by licensing revenues from the distribution of flagship programs, Raw and SmackDown. In 2020, despite the cancellation of live events due to the global pandemic, the company’s top line remained relatively flat as weekly wrestling content without live audience generated subscriber revenues on the WWE network. Interestingly, net margins improved from 8% in 2019 to 13.5% in 2020 as the company significantly reduced operational expenses.

CONCLUSION

Phases of Covid-19 crisis:

• Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
• Late-March 2020 onward: Social distancing measures + lockdowns
• April 2020: Fed stimulus suppresses near-term survival anxiety
• May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
• Since late 2020: Weak quarterly results, but continued improvement in demand and progress with vaccine development buoy market sentiment

Given the strong demand and global popularity of WWE’s flagship programs RAW, SmackDown, and NXT, we believe that the stock can completely recover to pre-Covid levels as discretionary spending rises in 2021.

While WWE Stock may be attractive, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how how the stock valuation for Home Depot vs World Wrestling Entertainment shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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